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STATE  BOARD  OF  ACCOUNTS 


.^ic-^/c^^uuL^  DEPARTMENT  OF  INSPECTION''    '^' '.'••  ;;^!  : 
•»  AND    SUPERVISION    OF 

PUBLIC  OFFICES. 


Special  Report  of 

GILBERT  H.   HENDREN, 

State  Examiner. 


For  the  period  from 
July  1,  1914,  to  June  30,  1916. 


TO  THE  GOVERNOR. 


Gilbert  H.  Hendren,  State  Examiner. 
Thos.  H,  Kuhn,  Deputy  Examiner. 
Bert  Winters,  Deputy  Examiner. 
George  M.  Crane,  Law  Clerk. 


/^ 


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STATE  BOARD  OF  ACCOUNTS 

INDIANA 

MEMBERS  OF  THE  BOARD 

Hon.  Samuel  M.  Ralston 
\  Governor 

Hon.  Dale  J.  Crittenberger 
Auditor  of  State 

Hon.  Gilbert  H.  Hendren 

State  Examiner 


537!*:  1 


State  Board  of  Accounts  of  Indiana, 
State  House,  Indianapolis. 
Hon,  Samuel  M.  Ralston,  Governor: 

The  success  and  appreciation  of  the  special  report  filed  for 
your  consideration  under  date  of  July  29,  1914,  have  prompted 
me  to  again  undertake  a  statement  of  the  purposes  of  the  public 
accounting  law  and  the  progress  made  by  the  State  Board  of 
Accounts. 

The  former  report  was  given  general  circulation,  and  requests 
for  copies  were  received  from  other  state  departments  and  from 
students  of  economics  in  this  and  other  states.  We  were  favored 
with  many  words  of  commendation  of  the  report.  All  of  which 
is  very  gratifying  to  the  officials  of  the  board,  and  is  especially 
significant  as  indicating  the  practibility  and  effectiveness  of  our 
law. 

The  public  accounting  law  of  Indiana  is  unanimously  endorsed, 
and  we  are  convinced  is  the  best  and  most  economical  accounting 
law  of  any  state  in  the  Union.  Practically  all  of  the  opposition 
that  exists  to  the  State  Board  of  Accounts  and  any  adverse  criti- 
cism of  the  law  are  traceable  to  some  interference  by  the  board 
with  questionable  transactions  of  officials,  or  with  deals  and  com- 
binations of  unscrupulous  persons  to  prevent  honest  and  fair 
competition. 

The  public  accounting  law  is  the  result  of  a  popular  demand 
in  corporate  business  for  a  greater  insight  into  the  details  of  the 
company's  affairs.  In  former  years  the  officials,  and  especially 
the  stockholders,  were  satisfied  with  a  fair  return  on  their  invest- 
ment and  no  questions  were  asked.  In  this  advanced  age  of 
combinations  and  consolidation  of  capital  such  is  not  the  case. 
No  matter  how  big  the  dividend,  the  stockholder  demands  to 
know  why  it  was  not  larger,  and  what  constitutes  the  heretofore 
ambiguous  item  of  "expense;"  or  he  may  feel  that  the  dividend 
is  greater  than  justified  by  the  volume  of  the  business.  It  may 
be  that  he  thinks  the  officials  are  fooling  themselves,  and  the 
large  dividend  is  not  justified.  He  may  feel  that  sooner  or  later 
there  will  be  a  discovery,  when  his  stock  may  become  impaired 
or  he  may  be  called  upon  to  return  in  the  form  of  an  assessment 
dividends  not  earned.  He  has,  or  thinks  he  has,  ideas  by  which 
the  expense  can  be  reduced,  and  he  demands  of  his  officials 
detailed  reports  covering  every  item  of  cost  of  the  business. 

This  is  as  it  should  be,  and  although  the  stockholder  may 
have  every  confidence  in  the  honesty  and  ability  of  his  officers, 


6 


■.♦*  «•»♦*''  ♦ 


he  is  not  satisfied  with  a  report  compiled  by  the  same  agents  who 
have  kept  the  records.  Hence  the  demand  for  expert  examina- 
tion and  analysis  of  the  company's  accounts  by  a  third  person, 
disinterested  and  competent.  This  demand  occasioned  the  birth 
of  a  new  profession,  that  of  expert  accountant,  and  experts  in 
accountancy  find  their  services  in  demand  and  their  work  ap- 
preciated. 

As  business  men  came  to  realize  the  importance  of  unit  cost, 
and  found  that  the  absolute  and  positive  condition  of  their  com- 
mercial and  industrial  investment  could  be  shown  at  any  time 
by  an  analysis  of  their  accounts,  and  the  transactions  of  any 
period  shown  and  their  profit  or  loss  determined  for  them,  it 
was  but  natural  that  they  should  demand  that  similar  methods 
be  employed  and  similar  reports  made  by  their  public  officials, 
that  they  might  know  how  and  for  what  they  were  required  to 
pay  into  the  public  treasuries  a  per  cent,  of  their  savings.  If 
expert  and  disinterested  examinations  were  good  business  in  their 
private  affairs,  the  same  were  certainly  worth  while  in  their  public 
affairs,  especially  since  their  officers  were  elected  for  a  given 
period,  no  matter  how  they  conducted  their  offices,  or  for  what 
they  expended  the  funds  of  the  taxpayers  intrusted  to  their  care 
and  control. 

The  old  theory  that  "everybody's  business  is  nobody's  busi- 
ness" was  no  longer  popular,  and  the  demand  for  an  accounting 
to  someone  in  authority  by  their  public  officials  became  so  insis- 
tent that  the  commercial  and  industrial  organizations  of  the  state, 
the  press,  and  many  public  officials  insisted  upon  legislation  that 
would  provide  for  expert,  impartial,  and  non-political  supervision. 

The  heretofore  careless  citizen  who  had  been  too  absorbed  in 
his  own  affairs  began  to  feel  a  new  responsibility  in  the  conduct 
of  the  public  business  in  which  he,  as  a  taxpayer,  was  an  inter- 
ested stockholder.  It  was  this  new  interest  that  demanded  of 
the  legislature  of  1909  a  supervision  of  all  public  offices.  The 
Merchants'  Association  of  Indianapolis,  recognizing  this  demand, 
appointed  a  committee  to  draft  and  to  present  to  the  legislature 
a  suitable  law  that  would  give  to  the  taxpayer  some  guarantee 
that  his  taxes  would  be  applied  for  his  benefit.  Accordingly  their 
committee  of  business  and  professional  men  submitted  the  present 
accounting  law  to  ths  legislature  of  1909,  and  requested,  through 
a  friendly  press,  the  support  of  all  public-spirited  citizens.  As  a 
result,  the  law  as  drafted  by  them  was  passed  with  practically  no 
opposition. 


The  actual  examinations  of  public  ofl&ces  and  institutions,  and 
the  investigations  pertaining  to  any  official  transactions  had  by 
them  are  generally  made  by  our  field  examiners.  The  efficiency 
of  this  department,  therefore,  depends,  in  the  main,  upon  the 
efficiency,  integrity,  and  industry  of  the  field  examiners.  In  the 
selection  of  the  field  force  I  have  exerted  every  effort  to  secure 
efficient  and  industrious  accountants  of  unquestionable  character. 

Our  field  examiners  are  required  not  only  to  have  the  knowl- 
edge and  ability  of  commercial  accountants,  but  must  be  familiar 
with  the  statutes  governing  all  public  offices,  and  be  able  to  cor- 
rectly canstrue  the  statutes  and  decisions.  They  are  kept 
advised  as  to  the  board's  construction  of  statutes,  and  are  encour- 
aged to  submit  new  questions  arising  during  examinations,  with 
their  opinions,  to  our  legal  department.  In  this  manner  we  have 
the  benefit  of  each  other's  experiences,  and  the  public  official  is 
given  the  results  of  the  best  and  most  expert  thought  and  deci- 
sions on  the  proper  method  of  handling  his  various  problems. 

It  is  my  belief  that  a  successful  examination  can  only  be  made 
by  a  pair  of  examiners  who  are  informed  on  the  statutes  govern- 
ing the  office  examined,  and  who  know  more  about  the  records 
and  the  accounts  required  to  be  kept  than  the  officer  examined. 
We  find  the  services  of  examiners  are  especially  in  demand  to 
assist  in  the  transfer  of  the  office  and  to  aid  and  instruct  the  in- 
coming official.  Good  citizens  are  elected  to  office  from  the 
farm,  the  workshop,  and  other  honorable  vocations,  without  any 
experience  as  accountants  or  knowledge  of  what  will  be  required 
of  them  in  the  administration  of  their  new  duties.  With  compe- 
tent examiners,  we  are  able  to  assist  the  officer  at  the  beginning 
of  his  term,  and  with  annual  examinations  to  keep  him  right  dur- 
ing his  tenure  of  office. 

It  is  my  good  pleasure  to  report  that,  because  of  the  greater 
experience  and  the  increased  efficiency  and  industry  of  our  ex- 
aminers, and  the  uniformity  and  simplicity  of  the  records  installed, 
I  have,  since  the  beginning  of  my  term,  been  able  to  reduce  the 
number  of  examiners  from  approximately  one  hundred  to  approxi- 
mately fifty,  and,  in  my  judgment,  our  service  value  is  now 
greater  than  ever  before. 

By  consolidating  positions  and  eliminating  duplications,  I 
have  reduced  our  office  force  from  a  maximum  of  twenty-three  in 
1913  to  a  minimum  of  twelve,  which  is  the  least  possible  number 
that  can  efficiently  and  promptly  handle  the  business  of  the  office. 


PUBLIC  ACCOUNTING  LAW  BI-PARTISAN. 

As  before  stated,  politics  and  political  influence  had  nothing 
to  do  with  the  sentiment  responsible  for  the  public  accounting 
law  in  Indiana.  If  the  enactment  of  this  statute  had  depended 
upon  the  support  of  either  political  party,  it  is  reasonably  sure 
the  act  would  not  have  been  passed  in  its  present  effective  form. 
7  am  equally  sure  that  the  success  of  the  law  depends  upon  the  admin- 
istration of  the  hoard  and  the  conduct  of  examinations  without 
regard  to  political  eifect. 

The  public  accounting  law  provides  for  two  deputy  examiners, 
who  shall  be  of  different  political  parties.  These  have  aided  in 
the  conduct  of  the  office,  in  shaping  the  policy  of  the  board,  and 
have  had  charge  of  the  settlements  with  public  officials.  The 
statute  also  provides  for  a  bi-partisan  field  force  of  examiners, 
and  examinations  have  all  been  made  by  two  examiners  of  different 
political  faith. 

The  assignment  of  a  bi-partisan  pair  of  examiners  to  a  con- 
gressional district  was  first  tried  in  1914,  and  found  to  be  not  only 
practical  and  economical,  but  very  popular  with  the  examiners. 
No  examiner  is  given  work  in  his  own  county,  but  is  assigned  to 
his  district  outside  of  his  county.  By  this  arrangement  he  is 
able  to  be  at  home  more,  and  at  less  expense  for  transportation, 
and  "the  municipalities  examined  are  saved  the  expense  of  long 
trips  between  assignments.  The  assignments  are  now  made 
covering  every  office  in  the  county  examined,  and  only  one  round 
trip  railroad  fare  is  collected.  This  charge  is  pro-rated  among 
all  the  offices  exaniined. 

Prior  to  and  during  the  first  year  of  my  administration  as 
many  as  five  pairs  of  examiners  were  assigned  during  one  year 
to  examine  the  different  offices  of  a  single  county.  This  was 
almost  imperative,  for  the  reason  that  only  part  of  the  examiners 
were  qualified  to  examine  all  the  offices  of  a  city,  county,  and 
township.  Necessarily,  there  was  a  great  deal  of  duplication  of 
work,  and  the  various  municipalities  were  required  to  pay  more 
on  account  of  this  duplication  and  additional  transportation. 

Our  force  has  reached  the  degree  of  efficiency  that  every  team 
of  examiners  is  now  qualified  to  make  the  examinations  of  all  the 
offices  in  a  county,  including  the  offices  of  the  townships,  cities, 
towns,  and  municipal  light  and  water  plants.  This  arrangement 
has  reduced  the  time  necessary  to  make  the  examination  fully 
one-third,  and  we  have  found  that  on  account  of  the  relationship 


9 

between  the  offices  to  be  examined,  a  more  nearly  uniform  and 
complete  check  can  be  made  by  the  same  pair  finishing  the  work 
of  the  entire  county. 

With  the  increasing  efficiency  of  the  field  examiners  and  public 
officials,  and  the  more  nearly  uniform  system  of  records  and 
accounts,  the  saving  of  time  necessary  to  make  the  second  and 
succeeding  examinations,  by  the  same  pair  of  examiners  in  the 
various  congressional  districts,  state  offices,  and  institutions  will 
be  such  that  it  will  be  possible  to  gradually  further  reduce  the 
examining  force  to  approximately  forty  examiners. 

Of  the  field  examiners  retired  from  the  service,  some  of  the 
most  efficient  have  been  placed  on  the  eligible  list  of  available 
examiners,  to  fill  vacancies  that  may  occur  from  time  to  time. 

EXAMINER  AND  HELPER  NOT  PRACTICAL. 

It  has  been  suggested  by  friends  of  the  accounting  law,  with 
a  desire  to  economize,  but  who  are  unfamiliar  with  the  details  of 
making  examinations  and  reports,  that  one  examiner  might  be 
in  charge  of  our  examinations  with  a  clerk  employed  at  a  less 
wage  to  assist.  ^ 

This  change  would,  of  necessity,  do  away  with  the  bi-partisan 
feature  of  the  law.  The  clerk  would  probably  feel  no  responsi- 
bility for  the  success  of  the  examination.  The  official  examined, 
if  of  different  political  belief  from  that  of  the  examiner,  would  be 
suspicious  during  the  examination  and  might  feel,  if  irregularities 
were  found,  that  they  were  prompted  by  political  prejudice. 

The  success  of  our  examinations,  and  the  fact  that  our  examiners 
are  able  to  make  adjustments  in  85  per  cent,  of  all  cases  of  irregu- 
larities, is  due  to  the  fact  that  the  official  examined  believes,  at  all 
times  that  he  will  be  impartially  and  fairly  treated. 

The  proposed  plan  has  been  tried  by  other  states  and  has 
proven  unsatisfactory.  It  is  our  experience  that  the  most  suc- 
cessful examinations  of  public  officials  are  conducted  by  bi-partisan 
examiners  of  equal  ability,  efficiency,  power,  and  responsibility, 
and  that  less  time  is  required  to  make  the  examinations  than 
when  conducted  by  an  unevenly  balanced  team  of  examiners. 
In  checking  accounts  one  with  the  other  as  much  depends  upon 
the  accuracy  of  the  one  checking  as  the  one  calling. 

Examination  must  be  thorough  and  complete,  and  kept  free 
from  politics  and  political  influences.     This  can  only  be  accom- 


10 

plished  by  employing  examiners  selected  from  the  different  politi- 
cal parties  who  are  efl&cient  and  honest. 

CONSOLIDATION  NOT  FAVORED. 

It  has  been  suggested  that  the  State  Board  of  Accounts  might 
be  combined  with  some  State  office,  board  or  commission,  and 
the  expense  of  management  reduced.  We  feel  that  the  business 
of  examination  and  supervision  of  public  offices  should  not  be 
subjected  to  other  influences.  To  he  successful,  the  State  Board  of 
Accounts  must  be  independent  of  any  interests  other  than  the  welfare 
of  the  taxpayer.  This  we  feel  can  only  be  accomplished  by  giving 
all  our  time  and  thought  to  the  6,522  offices  under  our  supervision. 
We  know  that  the  certainty  of  examination  has  been  the  cause 
of  greater  economy  and  accuracy  in  the  public's  affairs,  and  that 
the  restraining  effect  alone,  the  State  over,  has  been  worth  much 
more  than  the  expense  of  the  supervision. 

SCOPE  OF  EXAMINATION. 

Our  attention  has  been  repeatedly  called  to  the  general  criti- 
cism of  interested  dealers  and  their  friends,  who  believe  that  any 
advantage  obtained  over  the  public,  whether  honestly  obtained 
or  secured  through  trickery,  is  good  business  and  justifiable;  that 
we  exceed  the  authority  of  the  statute  in  our  examinations;  that 
our  activities  should  be  confined  to  the  correctness  of  the  accounts, 
a  mere  audit  of  receipts  and  disbursements,  and  a  verification  of 
extensions  and  additions,  without  investigation  of  the  legal  right 
of  the  official  to  make  the  collection  or  to  incur  the  expenditure. 
While  we  have  heard  of  their  objection  to  the  conduct  of  the  board 
and  its  examiners,  I  am  pleased  to  state  that  no  official  has  ever 
questioned  our  authority  or  interfered  in  any  way  with  the 
examiners  in  the  conduct  of  an  examination.  Our  interpreta- 
tion of  our  duty  is  to  check  the  accounts  and  verify  their  correct- 
ness, and  to  impartially  investigate  every  official  transaction,  to 
the  end  that  we  may  know  that  the  official  has  followed  the  law, 
and  that  the  taxpayer  has  had  value  received  in  necessities,  com- 
forts, and  privileges  for  which  he  is  annually  required  to  con- 
tribute his  part. 

//  is  our  belief  that  to  accomplish  this  purpose  the  public  account- 
ing law  contemplates  no  limit  to  the  scope  of  our  investigations  and 
recommendations.     Our  official  acts  have  been  based  on  the  theory 


11 

that  it  is  our  duty  to  do  everything  that,  in  our  judgment,  will  aid 
the  official  and  prevent  waste  of  public  funds. 

To  this  end  we  have  established  uniform  accounts  in  every 
pubHc  office  in  the  State,  and  a  uniform  system  of  examinations 
and  reports  of  examinations.  We  have  instructed  officials  in  the 
correct  methods  of  transacting  the  business  of  their  offices;  defined 
their  duties,  and  advised  them  as  to  the  intent  of  the  statutes. 
In  this  we  have  had  the  co-operation  of  the  Attorney.  General's 
office. 

LEGAL  DEPARTMENT. 

Our  legal  department  has  rendered  valuable  services  to  the 
public  officials  of  the  State  in  giving  them  legal  advice  as  to  their 
official  duties.  Heretofore  officials,  other  than  State  officials,  have 
had  no  common  source  of  information  as  to  the  proper  methods 
of  conducting  their  several  offices,  most  of  them  followed  prece- 
dent or  placed  their  own  construction  upon  the  statutes  govern- 
ing their  offices.  Consequently,  the  statutes  have  been  construed 
differently  in  different  parts  of  the  State. 

This  department  has  always  held  itself  in  readiness  to  advise 
with  all  the  public  officials  of  the  different  counties,  townships, 
cities,  and  towns,  or  with  their  attorneys,  about  any  question  of 
law  regarding  the  conduct  of  the  office.  In  this  way  we  have 
been  able  to  secure  a  uniform  application  of  the  laws  throughout 
the  State  that  could  not  have  been  attained  in  any  other  way. 

We  have  prepared  a  codification  of  the  laws  affecting  town- 
ship trustees  and  county  commissioners.  We  have  published  the 
statutes  affecting  fees  and  salaries  of  all  public  officials.  We  have 
issued  two  price  list  guides,  setting  out  the  market  prices  of  most 
everything  required  by  the  county  commissioners  and  the  trustees. 
We  have  pubHshed  rules  and  regulations  affecting  public  build- 
ing contracts. 

We  now  have  in  preparation  a  codification  of  the  statutes 
affecting  cities  and  towns,  which  will  not  go  to  press  until  after 
adjourjiment  of  the  next  legislature,  in  order  that  any  amend- 
ments of  the  laws  concerning  cities  and  towns  may  be  included 
therein. 

From  time  to  time  officials  have  been  instructed  on  specific 
questions.  UnbusinessHke  methods  and  practices  have  been 
ordered  discontinued,  and  many  changes  inaugurated  to  the 
benefit  of  the  public  service. 

It  is  the  custom  of  the  department  to  give  all  officials  the 


12 

benefit  of  the  experience  and  information  acquired  during  exam- 
inations, and  to  call  their  attention,  by  circular  letter,  to  rulings 
and  constructions  on  important  questions  affecting  their  offices. 

ITEMIZED  CLAIMS. 

One  of  the  greatest  sources  of  annoyance  and  causes  of  delay 
in  making  an  examination  of  an  office  is  the  failure  of  the  disburs- 
ing officer  to  require  all  claims  filed  with  him  to  be  properly  item- 
ized in  detail.  We  find  that  this  is  the  method  most  generally 
resorted  to  in  order  to  work  a  fraud  upon  the  municipality. 

There  is  no  reason  why  a  claimant  who  has  a  valid  claim  against 
a  municipality  should  not  itemize  it  in  detail,  while  the  man  who  is 
seeking  to  have  an  illegal  claim  -paid  out  of  -public  funds  most  natur- 
ally endeavors  to  conceal  its  identity. 

The  statutes  expressly  require  that  all  claims  shall  be  item- 
ized in  detail,  and  we  are  proposing  to  hold  an  officer  chargeable 
with  all  amounts  paid  out  on  claims  not  properly  itemized,  and 
an  order  to  this  effect  was  addressed  to  all  public  officials  on 
August  26,  1915.  Since  that  time  officials  generally  have  been 
more  careful  to  follow  the  law,  but  on  account  of  carelessness,  or 
with  the  intent  to  conceal  unreasonable  or  illegal  allowances, 
some  officials  are  still  paying  claims  that  are  not  properly  itemized. 

IMPORTANCE  OF  CASH  BOOK. 

Another  source  of  unnecessary  delay  and  inconvenience  to 
our  examiners  in  making  their  examinations  is  the  failure  of 
treasurers  and  comptrollers  to  keep  their  records  in  balance.  It 
is  not  an  unusual  thing  for  some  such  officials  to  rely  entirely 
upon  our  examiners  to  ascertain  for  them  their  correct  balance, 
and  to  make  no  attempt  to  keep  their  records  properly  posted, 
when  such  balance  has  once  been  determined.  The  time  spent 
by  our  men  in  reconciling  the  cash  of  a  public  official  necessarily 
increases  the  cost  of  the  examination,  and  is  due  entirely  to  the 
failure  of  the  official  to  perform  his  duties.  The  majority  of  the 
complaints  made  as  to  the  cost  of  examinations  by  this  'depart- 
ment are  occasioned  by  such  a  condition  of  affairs. 

COST  ACCOUNTING  SYSTEM. 

/-  Some  years  ago  the  manufacturers  of  this  country  saw  the 
necessity  for  a  system  of  accounting  that  would  reveal  to  them 
just  what  their  product  cost  to  manufacture,  hence  the  cost  sys- 


13 

tern  was  devised,  which  was  intended  to  show  the  cost  of  the 
product  at  each  stage  in  process  of  manufacture,  as  well  as  com- 
pleted product.  The  system  has  been  revised  from  time  to  time 
to  meet  the  requirements  of  the  individual  manufacturer,  so  that 
at  the  close  of  the  fiscal  year  he  may  determine  his  profits  with 
some  degree  of  accuracy.  Prior  to  the  installation  of  the  cost 
system,  it  was  largely  a  matter  of  conjecture  with  him  as  to 
whether  he  had  made  profits  during  the  period  or  had  sustained 
losses. 

Cost  keeping  accomplishes  much  if  it  does  nothing  more  than  to 
put  a  check  on  waste  and  its  subsequent  occurrence  in  manufacture. 

Double  entry  system  of  account  keeping  is  the  only  true  basis 
upon  which  the  accounts  of  a  cost  system  snould  be  established. 
A  system  of  accounts  by  which  records  of  costs  are  maintained 
parallel  with  charges  in  the  financial  accounts  for  the  manufac- 
turing materials,  labor,  and  expense  lacks  completeness,  and  its 
accuracy  is  open  to  question  when  agreement  with  the  financial 
accounts  is  not  obligatory. 

Realizing  the  necessity  for  the  introduction  of  modern  com- 
mercial practices  into  our  public  institutions,  this  department,  in 
its  examinations  of  those  institutions  wherein  certain  commodi- 
ties are  manufactured  on  State  account,  has  gone  very  carefully 
into  the  matter  of  costs,  with  the  result  that  the  actual  cost  of 
the  manufactured  article  is  known  to  a  certainty.  With  the 
assistance  of  the  examiners  of  this  department,  records  have  been 
so  prepared  as  to  permit  of  the  assembling  of  all  elements  of  cost 
such  as  raw  materials,  carriage  inward  on  purchases,  various 
manufacturing  and  selling  costs,  including  direct  and  indirect 
labor,  hand  tools,  fixed  charges  embracing  light,  power,  and  heat, 
depreciation,  rents  and  insurance,  expenses  of  upkeep,  travelers' 
expenses,  etc. 

To  accomplish  this,  it  was  necessary  to  introduce  records  to 
carry  out  the  idea  of  the  continuous  or  perpetual  inventory,  so 
that  the  stock  records  would  disclose  at  any  time  the  amount  and 
value  of  stock  on  hand  and  the  quantities  and  value  thereof  used 
in  the  process  of  manufacture. 

The  results  thus  obtained  were  made  possible  only  by  the  very 
capable  services  rendered  by  the  assistants  of  the  institution 
wherein  the  above-mentioned  results  have  been  accomplished. 

The  cost  systems  insta;lled  in  such  manufacturing  institutions 
are  the  result  of  much  thought  and  labor.  A  practical  applica- 
tion was  made  of  ideas  gathered  from  some  of  the  largest  and  best 


14 

manufacturing  establishments  in  Indiana  and  other  states,  in 
which  some  of  our  State  institution  employees  and  our  field  exam- 
iners have  had  many  years'  of  experience,  together  with  ideas 
gathered  and  applied  from  authorities  of  national  reputation  on 
this  subject. 

It  has  been  generally  contended  by  those  who  have  given  the 
matter  much  study  and  consideration  that  a  proper  "budget 
system"  could  not  be  created  for  the  institutions  wherein  certain 
commodities  are  manufactured  until  such  institutions  established 
departmental  cost  accounting  systems,  for  the  reason  that  the 
cost  system  furnishes  the  detail  of  expenditure  for  the  previous 
years,  and  thus  supplies  the  only  intelligent  basis  upon  which  to 
determine,  scientifically,  how  to  make  estimates  for  the  ensuing 
year. 

Therefore,  a  cost  accounting  system  has  been  installed  in  our 
State  institutions  that  manufacture  various  commodities,  and  a 
"budget  system"  has  been  prepared  for  said  institutions  for  the 
purpose  of  determining  in  the  most  intelligent  manner  their 
actual  needs. 

This  department  would  cease  to  be  progressive  if  it  made  the 
claim  that  the  systems  referred  to  above  are  absolutely  perfect, 
but  it  is  claimed  that  great  advancement  has  been  made  in  cost 
accounting  in  all  departments  of  State  and  municipalities,  and  a 
proper  safeguard  placed  around  the  expenditure  of  money  and 
a  uniform  and  systematic  method  of  detailing  the  expenditure 
shown. . 

STORE  ROOM. 

When  it  is  known  that  the  value  of  material  and  supplies 
passing  through  the  store  rooms  of  our  State  institutions  is  more 
than  $1,000,000.00  annually,  the  necessity  for  a  system  that  will 
safeguard  the  receipt  and  distribution  of  same  becomes  evident. 

The  method  of  conducting  "stores"  in  our  various  State  insti- 
tutions is  similar  to  that  employed  by  some  of  our  largest  and  best 
manufacturing  plants.  The  principle  of  buying  materials  upon 
triplicate  purchase  orders,  numbered  consecutively  by  the  printer, 
is  in  practice  in  these  institutions.  The  purpose  of  the  triplicate 
being  to  provide  a  copy  to  the  concern  of  whom  the  goods  are 
purchased,  one  to  the  purchasing  department,  and  one  to  the 
receiving  or  "stores"  department.  Upon  the  latter  copy  no  quan- 
tities are  listed,  the  quantities  and  weights  being  left  off  in  order 
to  compel  the  receiving  clerk  to  count  or  weigh  the  materials 


15 

received.  If  he  had  the  quantities  or  weights  listed  before  him, 
he  might  be  content  to  check  in  the  articles  as  correct,  whereas, 
in  the  absence  of  such  quantities  or  weights  he  must  insert  in  the 
space  provided  therefor  the  actual  count  or  weight. 

After  the  receiving  clerk  records  the  items  received,  he  charges 
his  stock  accounts  therewith  and  sends  the  receiving  order  to  the 
accounting  department,  where  it  is  checked  against  the  invoice, 
and  if  found  correct  is  entered  for  payment;  if  incorrect  it  is  held, 
pending  adjustment  of  claim. 

Each  department  having  use  for  the  materials  and  supplies 
issues  requisitions  upon  the  store-keeper  for  its  needs.  These 
requisitions  are  also  consecutively  numbered  by  the  printer,  and 
are  O.  K.'d  by  the  foreman  or  superintendent  in  charge  of  the 
department  requesting  the  supplies. 

At  the  close  of  the  day  these  requisitions  are  assembled  in 
such  order  as  to  permit  of  the  most  convenient  manner  of  posting. 

At  the  close  of  the  month,  or  at  any  stated  period  after  all 
postings  are  completed,  the  condition  of  the  various  stock  accounts 
should  reflect  the  actual  condition  of  the  stock.  This  was  made 
possible  by  placing  the  responsibility  solely  upon  the  store-keeper 
by  allowing  him  and  the  superintendent,  only,  keys  to  such  store- 
room. 

The  superintendents  of  our  institutions  were  in  absolute  accord 
with  the  idea  of  perfecting  this  system  to  the  point  of  stopping 
all  leaks.  A  number  of  them  met  at  the  office  of  the  State  Board 
of  Accounts  with  this  idea  in  view,  and  after  a  day's  session  it  was 
the  concensus  of  opinion  that  the  establishment  of  the  system 
herein  outlined  would  tend  to  reduce  all  leakage  to  a  minimum. 

The  condition  of  the  stock  since  the  installation  of  the  above- 
described  system  is  known  at  all  times,  and  the  issues  against 
same  are  charged  to  the  department  for  which  the  purchase  was 
made. 

In  the  absence  of  the  above-stated  continuous  inventory  sys- 
tem, the  cost  of  the  various  articles  manufactured  in  some  of  our 
institutions  was  largely  a  matter  of  guess,  whereas,  with  it  the 
first  step  of  the  cost  system  later  established  was  created. 

BUDGET  SYSTEM. 

Under  the  Federal  Constitution,  the  President  is  made  respon- 
sible to  the  electorate  for  the  executive  departments.  It  was  tne 
opinion  of  President  Taft,  set  forth  in  a  special  message  to  Con- 


16 

gress,  that  the  President  had  the  power  to  prepare  and  submit  a 
budget  to  Congress,  but  without  constitutional  change  or  legisla- 
tion his  recommendations  might  receive  no  consideration.  This 
was  the  first  time  that  any  responsible  officer  of  the  national 
government  had  advocated  the  "budget  idea."  About  this  time 
+he  late  Senator  Aldrich  stated  that  if  the  government  were 
managed  on  a  sound  business  basis,  similar  to  large  private  cor- 
porations, it  would  effect  a  saving  of  3^300,000,000.00  a  year. 

Recently,  Mr.  Hughes,  in  his  tour  of  the  western  states,  advo- 
cated the  budget  system  for  national  expenditures,  and  to  the 
pleasure  of  the  friends  of  the  budget  idea  made  this  subject  inter- 
esting. 

President  Wilson  is  on  record  as  having  always  favored  the 
budget  idea  in  public  offices.  With  President  Wilson's  advocacy 
of  a  budget  system;  with  Secretary  McAdoo's  reported  determina- 
tion to  work  for  the  introduction  of  the  budget;  with  the  chairman 
of  the  appropriation  committee  outspoken  for  the  budget  idea,  it 
is  confidently  expected  that  something  will  be  done  by  the  next 
Congress  to  amend  the  laws  of  the  federal  government  and  change 
the  procedure  of  Congress,  whereby  the  voting  of  money  will  rest 
on  a  plane  of  open-handed  square  dealing. 

In  thirty-eight  countries  of  the  old  world  the  budget  idea  has 
already  been  incorporated  and  made  a  part  of  the  statutory  law. 

At  the  time  the  constitution  of  this  State  was  adopted  there 
was  little  the  people  wanted  or  that  the  State  government  needed 
to  do.  The  needs  of  the  people  could  largely  be  attended  to  by 
the  local  communities.  But  the  demand  on  the  government  for 
service  grew.  Increased  service  meant  increased  cost  of  govern- 
ment; increased  cost  of  government  meant  increased  revenues; 
increased  revenues  meant  increased  burdens  of  taxation.  These 
things  compelled  attention  as  to  the  development  of  means  of 
control  for  making  the  government  responsible  for  the  manner  in 
which  it  used  this  trust  estate.  It  was  this  conception  of  trustee- 
ship and  the  pressure  of  economic  necessity  that  brought  home  to 
officers  their  strict  accountability  and  caused  the  people  to  de- 
mand efficiency  and  economy  in  the  management  of  their  affairs. 

For  more  than  half  a  century  there  has  been  a  growing  feeling 
of  discontent,  not  at  the  impairment' of  our  liberties,  which  would 
cause  the  people  to  rise  in  revolution,  but  at  the  waste  of  our  great 
and  incomparable  resources;  at  inability  to  enfore  official  respon- 
sibility; at  the  irresponsiveness  of  the  government  to  the  will  of 
the  people;  at  the  "dark  chamber"  performances  of  standing  com- 


17 

mittees  operated  by  the  back  door  route  commonly  called  "in- 
visible government". 

The  "budget  system^'  means  that  there  must  he  estimates  of  needs, 
and  there  must  he  estimates  of  resources  that  may  he  available  to 
meet  such  needs. 

The  "budget  system"  is  a  cure  for  "invisible"  government. 
It  means  direct  executive  supervision;  it  means  a  careful  expendi- 
ture of  the  people's  money;  it  means  strict  accountability;  it 
means  publicity,  and  it  means  administrative  preparedness. 

The  lack  of  a  budget  system  means  a  lack  of  administrative 
planning,  and  necessarily  means  a  big  waste  of  public  resources. 

Under  the  "budget  system"  the  estimates  of  needs  must  be 
made  by  persons  who  are  familiar  with  the  requirements  of  each 
kind  of  work  to  be  done,  or  each  service  to  be  rendered,  including 
capital  requirements  as  well  as  maintenance  and  operating 
requirements.  The  estimates  of  financial  resources  must  be  made 
by  persons  who  are  familiar  with  present  financial  conditions; 
who  must  be  able  to  forecast  probable  revenues  derivable  under 
existing  laws,  having  in  mind  present  and  proposed  financial 
policies.  They  must  have  the  ability  to  forecast  probable  sur- 
pluses and  deficits  at  the  beginning  of  the  period  to  be  financed, 
and  of  the  probable  surpluses  and  deficits  at  the  end. 

In  many  states  of  our  Union  the  executive  branch  has  been 
so  far  carved  into  independent  jurisdictions  that  the  governor 
cannot  obtain  the  information  or  co-operation  required  to  make 
an  executive  budget  effective.  Under  the  liberal  provisions  of 
the  public  accounting  law  of  Indiana,  providing  for  the  adoption 
and  installation  of  complete  forms,  records,  and  accounts  for  the 
proper  conservation  of  all  public  expenditures,  the  State  Board 
of  Accounts  is  intrusted  with  the  necessary  authority,  and  ha^ 
prepared  a  complete  "budget  system"  for  state  offices,  institu- 
tions, boards,  bureaus,  and  commissions,  county,  city,  town,  and 
township  offices,  all  of  which  have  been  distributed  to  the  proper 
officials. 

Although  but  a  short  time  has  passed  since  the  budget  analysis 
pamphlet  and  the  budget  ordinance  forms  were  sent  out  from 
this  office,  we  have  already  received  a  number  of  letters  from 
public  officials,  commending  the  board  for  its  efforts  and  endorsing 
the  forms  furnished.  The  county  council  of  one  of  the  largest 
counties  in  the  State  was  especially  impressed  with  the  com- 
pleteness of  the  information  furnished  by  these  forms  which  had 
been  carefully  filled  out  and  submitted  to  them.     The  chairman 


18 

made  the  statement  in  the  presence  of  the  other  members  that, 
by  reason  of  the  accurate  itemized  statements  of  the  expenditures 
and  estimates  of  the  needs,  the  council  would  be  able  to  cut  the 
appropriation  for  the  ensuing  year  as  much  as  $75,000.00. 

The  adoption  of  the  "budget  system,"  as  prescribed  and  in- 
stalled by  this  department  in  the  various  offices  throughout  the 
State,  should  mean  a  total  saving  to  the  taxpayers  of  a  large  sum 
annually,  and  it  will  materially  reduce  the  expense  of  examination 
of  such  offices  by  the  State  Board  of  Accounts. 

The  budget  as  prepared  will  furnish  accurate  information  for 
executive  recommendations,  and  a  basis  for  legislative  review,  criticism, 
and  final  action,  and  it  will  not  in  any  way  infringe  upon  the  consti- 
tutional prerogatives  of  the  members  of  the  General  Assembly. 

PRICE  LIST  GUIDE. 

One  of  the  most  frequently  practiced  frauds  upon  the  town- 
ship and  county  has  been  in  the  sale  of  supplies  at  exorbitant 
prices.  The  methods  employed  to  corrupt  public  officials  have 
been  varied  and  interesting. 

/  regret  to  say  that  the  practice  of  bribery  in  some  form  or  other 
had  become  so  common  in  this  class  of  business  that  fair  competition 
had  been  destroyed,  and  some  reputable  firms  had  felt  compelled  to 
resort  to  illegal  methods  or  discontinue  business. 

It  was  our  judgment  that  the  greater  part  of  the  officials  who 
were  parties  to  such  frauds  became  such  at  the  solicitation  of  the 
corrupt  agent  who  prpmised  that  the  bills  would  be  so  made  ou+; 
that  detection  of  the  fraud  would  be  made  impossible.  It  is 
gratifying  to  report  that  when  we  have  been  able  to  establish  such 
fraud  we  have  had  but  little  trouble  in  recovering  the  amount  of 
the  graft  from  the  agent  or  dealer  who  profited  most  from  the 
unreasonable  prices. 

After  carefully  considering  this  condition  of  affairs,  we  con- 
cluded that  it  would  best  be  remedied  by  the  preparation  and  dis- 
tribution of  a  schedule  of  prices  of  articles  and  commodities 
generally  required  in  the  conduct  of  county  and  township  business. 

Accordingly,  the  first  price  list  guide  was  distributed  in  the 
spring  of  1915.  It  was  my  purpose  to  properly  inform  the  trus^ 
tees  and  the  county  commissioners  of  legitimate  market  prices, 
so  that  they  would  not  be  deceived  into  buying  inferior  supplies 
at  exorbitant  prices  from  unreliable  supply  agents. 


19 

With  this  end  in  view,  and  to  estabhsh  the'  genuineness  of  the 
prices  quoted,  a  number  of  responsible  firms  were  mentioned  in 
the  guide.  I  regret  that  my  motives  were  not  understood,  and 
that  there  was  some  criticism  of  the  fact  that  any  firm's  name 
was  mentioned.  There  was  no  intention  to  discriminate  against 
the  local  merchant. 

/  have  always  thought,  other  things  being  equal,  that  the  home 
merchant  was  entitled  to  the  public  business  of  his  locality. 

On  account  of  the  change  in  prices  and  the  requirements  of 
the  vocational  educational  statute,  another  price  list  guide  was 
published  and  distributed  in  the  spring  of  this  year.  No  firm 
name  was  mentioned,  and  we  feel  no  claim  of  favoritism  can  be 
made.  I  am  pleased  to  state  no  complaint  of  this  guide  nas 
reached  this  office.  Neither  has  the  selfish  and  dishonest  supply 
agent,  who  resented  our  interference  with  his  unreasonable  prices 
and  his  unlawful  methods,  complained.  He  has  accepted  the 
price  list  guide  as  an  additional  restraint  to  his  corrupt  methods. 

Naturally,  from  year  to  year  more  and  more  school  supplies 
are  needed  for  our  schools,  for  the  reason  that  the  number  of 
school  children  is  constantly  increasing.  On  account  of  voca- 
tional education,  the  State  Board  of  Education  has  required  the 
trustees  to  furnish  more  and  different  books  and  apparatus.  The 
increase  in  the  gravel  road  mileage,  and  the  increase  to  the  road 
fund  from  automobile  licenses,  as  well  as  the  popular  demand  for 
better  roads,  has  increased  the  requirements  and  demands  for 
road  machinery  and  appliances. 

Yet,  by  reason  of  the  repressive  effect  of  the  price  list  guide 
and  the  voluntary  reduction  in  purchases  by  a  number  of  trustees, 
the  following  table  will  show  that  the  purchase  of  school  supplies 
and  road  supplies  during  1915  was  very  much  less  than  during 
1914. 

STATEMENT    OF   SCHOOL   AND    ROAD    SUPPLIES   PURCHASED 
BY   TOWNSHIP   TRUSTEES   IN    1914  AND   1915. 

Road  supplies  purchased  in  1914 $358,926.02 

Road  supplies  purchased  in  1915 260,077.03 

Decrease  in  1915 $98,848.99 

School  supplies  purchased  in  1914 $515, 188. 19 

School  supplies  purchased  in  1915 344,889.94 

Decrease  in  1915 170,298.25 

Total  decrease $269,147.24 


20 

More  than  $40,000.00  of  this  decrease  was  in  fifteen  townships. 
In  these  townships  our  examiners  had  located  all  sorts  and  kinds 
of  graft,  and  there  were  several  recoveries  and  prosecutions  as  a 
result  of  their  examinations. 

There  were  $62,755.69  of  charges  against  ex-trustees  in  our 
examinations  made  in  1915  of  the  township  business  of  1914. 
A  large  per  cent,  of  these  charges  have  been  settled  and  the  cash 
recovered  for  the  benefit  of  the  taxpayers  of  the  townships.  The 
remainder  uncollected  is  still  pending  and  in  process  of  collection. 

EXTRAVAGANCE  IN  PURCHASE  OF  TEXT  AND 
REFERENCE  BOOKS. 

Our  field  examiners  have  found  in  the  course  of  their  investi- 
gations that  there  has  been  a  surprising  amount  of  extravagance 
in  the  purchase  of  supplementary  text  books  and  reference  books ; 
that  thousands  of  dollars  have  been  paid  out  for  text  and  reference 
books  that  were  not  needed  by  the  corporations,  and  that  have 
but  little  merit.  The  same  is  also  true  with  reference  to  maps 
and  charts. 

A  popular  method  among  supply  dealers  was  to  appoint 
township  trustees  their  agents  and  allow  such  trustees  a  commis- 
sion on  all  goods  purchased  for  their  township  from  such  dealers. 
The  result  of  such  illegal  transactions  was  that  thousands  of  dol- 
lars were  expended  for  useless  supplies,  and  in  many  instances 
books,  blanks,  ink,  pens,  pencils,  chalk,  erasers,  maps,  charts, 
and  other  school  supplies  were  purchased  in  such  enormous  quan- 
tities that  it  would  be  impossible  to  use  the  supply  in  years. 

One  trustee,  after  having  purchased  for  one  dollar  each  sev- 
eral hundred  copies  of  a  small  civil  government  that  should  have 
cost  not  more  than  twenty-five  cents  per  copy,  with  a  large  num- 
ber of  these  on  hand  in  his  office,  bought  more  than  one  hundred 
more  "because  the  old  ones  did  not  contain  the  Governor's  pic- 
ture and  the  new  ones  did." 

One  supply  dealer  or  agent  secured  without  cost  a  large  num- 
ber of  agricultural  and  other  government  reports  and  sold  them 
to  township  trustees  of  the  State, 

Another  agent  secured  a  large  number  of  old  charts  of  various 
kinds  that  were  out  of  date  years  ago.  These  were  absolutely 
without  value  for  any  purpose,  yet  this  supply  man  found  trus- 
tees who  bought  them  at  a  price  in  excess  of  the  price  originally 
placed  upon  them  by  the  publishers. 


21 

In  order  to  stop  this  crookedness,  for  it  was  nothing  less,  the 
State  Board  of  Education,  after  a  conference  with  the  State  Board 
of  Accounts,  adopted  rules  governing  the  purchase  of  the  above- 
mentioned  articles  by  school  officials.  It  will  now  be  necessary 
under  that  ruling  for  the  official  to  have  the  written  consent  of 
the  county  superintendent  of  schools  of  his  county  before  material 
or  supplies  of  this  kind  can  be  bought,  and  these  supplies  must 
be  had  at  prices  not  in  excess  of  prices  named  in  lists  furnished 
by  the  State  Board  of  Education.  We  propose  to  hold  a  trustee 
chargeable  with  any  amount  paid  out  contrary  to  these  rules. 

PUBLIC  BUILDING  CONTRACTS. 

From  special  examinations  of  this  department,  collusion  be- 
tween the  architect  and  contractor  and  dealer  in  material  and 
officials  have  been  so  common  that  we  are  forced  to  believe  that 
in  the  past  it  has  been  the  rule  rather  than  the  exception.  In  a 
great  many  public  undertakings  requiring  the  services  of  an 
architect  and  contractor  there  has  been  some  sort  of  a  combina- 
tion to  favor  some  particular  material  or  process.  Large  sums 
have  been  recovered  on  account  of  these  combinations  between 
the  architects  and  public  officials  and  contractors.  The  largest 
single  amount  recovered  on  one  job  from  the  contractor  and  the 
agent  furnishing  material  was  more  than  $16,000.00.  This  sum 
and  many  other  recoveries,  ranging  from  $1,000.00  to  $8,000.00, 
from  officials  and  contractors,  were  made  as  a  result  of  special 
examinations  based  on  information  not  disclosed  by  the  records, 
which  was  not  and  could  not  have  been  discovered  in  a  mere 
audit  of  the  accounts. 

We  believe  it  is  the  duty  of  the  State  Board  of  Accounts  to  deter- 
mine whether  the  laws  of.  the  State  are  complied  with  in  the  letting 
and  carrying  out  of  each  public  contract,  as  well  as  to  prescribe  the 
methods  of  accounting,  and  to  determine  the  accuracy  of  the  accounts 
in  connection  therewith. 

Specifications  for  any  school  building  should  be  so  worded  as 
to  make  plain  to  the  bidders  that  the  successful  bidder  will  be 
required  to  guarantee  in  his  written  contract  that  any  material, 
supplies  or  sanitary  apparatus  or  systems  which  are  furnished, 
constructed,  remodeled  or  installed  in  and  for  a  school  building 
shall  be  practically  noiseless,  free  from  friction,  and  will,  in  all 
respects,  comply  with  the  provisions  of  the  Sanitary  School  House 
Law  of  Indiana. 


22 

If  bidders  do  not  wish  to  make  this  guarantee  in  the  contract, 
they  should  refrain  from  bidding  on  the  work  to  be  let. 

The  purchasing  of  furniture  and  supplies  and  the  erection  of 
public  buildings  are  matters  which  concern,  in  a  more  or  less 
degree,  every  taxpayer  in  the  municipality.  These  matters  are 
strictly  public  undertakings,  and  as  such  taxpayers  are  entitled 
to  have  the  law  strictly  complied  with  before  the  burden  is  placed" 
upon  them. 

In  one  instance  we  found  that  the  firm  of  architects  employed 
to  draw  the  plans  for  the  heating  and  ventilating  system  in  a 
public  building  specified  in  their  plans  that  a  certain  kind  of 
equipment  should  be  installed.  It  developed  in  the  course  of  the 
examination  that  this  firm,  acting  under  another  name;  was  the 
sole  agent  for  the  kind  of  equipment  specified,  and  that  it  was 
awarded  the  contract  for  the  work.  In  this  case  we  have  the 
firm  acting  in  a  triple  capacity — as  architects  or  heating  engineers, 
for  which  they  received  5  per  cent,  commission;  as  agents  for  the 
manufacturers  of  the  equipment  specified,  and  as  contractors. 
In  the  latter  capacity  they  agreed  to  do  the  work  to  the  satisfac- 
tion of  the  heating  engineers,  and  to  use  material  approved  by 
the  engineer.  Needless  to  say,  the  plant  cost  far  too  much,  and 
was  never  satisfactory. 

Under  section  3869,  Burns  R.  S.,  1914,  it  is  provided  that  if 
there  shall  be  any  collusion  of  fraud  of  any  kind  or  character 
among  the  bidders  at  the  letting  of  any  contract,  that  such  con- 
tractor shall  not  be  entitled  to  payment  for  any  work  done  thereon 
if  he  were  a  party,  either  directly  or  indirectly,  to  the  fraud. 

In  order  to  more  effectively  guard  against  such  collusions  and 
frauds,  we  have,  after  many  conferences  with  the  leading  archi- 
tects of  the  State,  prepared  rules  and  regulations  relating  to  con- 
tracts governing  public  work  that  will  conserve  the  welfare  of  the 
various  municipalities  of  Indiana.  Such  rules  are  intended  to 
prescribe  the  method  of  awarding  of  contracts,  the  preparation  of 
plans  and  specifications  for  such  work,  and  the  supervision  of  the 
work,  to  the  end  that  there  shall  be  unrestricted  competition. 
These  rules  were  submitted  to  and  approved  by  the  Attorney 
General.  They  were  made  with  the  hope  of  assisting  officers  of 
the  counties,  townships,  towns  and  cities  of  the  State  in  getting 
greater  competition  in  the  letting  of  contracts  for  the  erection  of 
buildings,  furnishing  heating  apparatus,  ventilation,  plumbing,* 
electrical  fixtures,  supplies  of  all  kinds,  and  in  any  undertaking 
where  competitive  bids  are  to  be  received.     We  require  that  a 


23 

copy  of  all  plans  and  specifications  for  public  buildings  shall  be 
filed  with  this  department  for  inspection. 

We  believe  that  every  honest  contractor  should  be  made  to 
realize  that  the  opportunity  to  all  bidders  will  be  free  and  unre- 
stricted, and  that  there  will  be  no  attempt  in  any  way  to  prevent 
legitimate  competitive  bidding.  This  department  will  use  its 
best  efforts  to  prevent  any  payment  to  a  contractor  for  work  or 
services  performed  by  him  if  it  should  be  able  to  establish  that 
such  contractor  was  a  party  to  any  fraud. 

Architects  and  engineers  are  employed  in  an  advisory  capacity, 
and  the  public  official  whose  duty  it  is  to  contract  for  and  have  a 
building  constructed  or  other  work  performed  cannot  delegate  the 
power  vested  in  his  office  by  law  to  an  architect  or  engineer. 

An  individual  may  select  a  particular  kind  or  make  of  material 
or  fixtures  to  be  used  in  a  building  which  he  may  desire  to  erect 
regardless  of  the  fact  that  such  material  or  fixtures  may  be  under 
the  exclusive  control  of  some  one  person,  firm  or  corporation, 
while  a  public  official  must  follow  the  rules  laid  down  by  the  law 
and  prepare  his  plans  and  specifications  so  as  to  secure  competi- 
tive bids  at  the  letting  of  the  contracts. 

A  public  official  is  acting  for  the  taxpayers  of  a  prescribed 
district  which  he  has  been  chosen  to  represent,  and  he  has  no 
authority  except  thac  which  is  vested  in  his  office  by  law. 

One  of  the  main  objects  to  be  accomplished  from  our  point  of 
view  is  to  have  the  specifications  so  worded  that  manufacturers 
of  several  different  materials  or  manufactured  articles  will  figure 
with  the  bidders  on  furnishing  their  particular  make  of  material 
or  supplies,  and  being  placed  in  competition  with  other  manu- 
facturers of  similar  articles,  will,  of  necessity,  make  their  lowest 
price,  thus  giving  the  municipality  the  advantage  of  any  reduc- 
tion in  price  caused  by  such  competition. 

With  this  end  in  view,  architects  and  engineers  in  making  their 
plans  and  specifications  should  so  treat  each  individual  case  as  to 
reduce  any  possible  favoritism  to  the  minimum,  thus  complying 
with  the  spirit  of  the  law. 

GRAFT  IN  FURNACES. 

Our  department  has  made  extensive  investigations,  and  a 
great  deal  of  time  has  been  spent  in  locating,  and,  we  beheve  to  a 
a  large  degree  preventing,  imposition  on  public  officials  whose 
duty  it  is  to  purchase  furnaces  for  school  buildings. 


24 

Specifications  for  these  furnaces  usually  call  for  furnaces 
weighing  either  5,000  or  5,500  pounds.  We  suspected  from  evi- 
dence of  combinations  that  but  few  furnaces  weighed  the  number 
of  pounds  required  by  the  specifications.  We  have  never  heard  of 
a  furnace  being  weighed  by  any  one  before  it  was  installed. 
Accordingly,  I  sent  examiners  to  a  factory  in  Illinois  that  seemed 
to  control  the  sale  of  a  large  part  of  the  furnaces  for  school  build- 
ing business  in  Indiana,  for  the  purpose  of  finding  the  actual 
weight  of  the  various  furnaces  manufactured  by  them.  The 
manager  of  this  company  positively  refused  to  give  our  examiners 
the  weight  of  their  furnaces ;  the  reason  assigned  was  that  he  must 
protect  his  Indiana  agents.  Our  next  step  was  to  have  a  furnace 
removed  and  weighed  in  the  presence  of  a  number  of  witnesses. 
The  specifications  under  which  this  furnace  had  been  installed 
called  for  a  furnace  weighing  5,000  pounds.  This  furnace  when 
weighed  by  an  expert  engineer  for  our  department  was  found  to 
weigh  but  4,600  pounds.  In  that  township  building  there  were 
four  furnaces  of  that  make  and  number,  making  a  total  shortage 
of  1,600  pounds. 

The  same  make  of  furnace  bearing  the  same  number  under 
specifications  calling  for  a  furnace  weighing  5,500  pounds  had 
been  installed  in  another  county.  There  were  three  of  these. 
A  total  shortage  of  2,700  pounds.  The  agent  who  sold  these  fur- 
naces is  now  doing  business  in  another  State. 

HEATING    AND    VENTILATION    OF    PUBLIC    SCHOOL 

BUILDINGS. 

In  the  matter  of  heating  and  ventilation  of  public  school 
buildings  a  diversity  of  opinion  has  existed  for  several  yeara 
regarding  the  relative  merits  of  the  various  systems  and  their 
compliance  with  the  Sanitary  School  House  Law.  The  system 
of  heating  and  ventilation  that  will  meet  the  requirements  of  the 
law,  best  conserve  the  public  funds,  and  encourage  legitimate 
competition  is  the  object  sought  by  this  department  in  the  inter- 
est of  the  taxpayers. 

The  controversy  between  competitive  manufacturers  of  heat- 
ing and  ventilating  systems  and  between  contractors  is  renewed 
practically  every  time  bids  are  received  by  township  trustees  and 
school  boards,  and  frequently  results  in  the  elimination  of  meri- 
torious systems  of  heating  and  ventilation,  on  the  theory  that 
such  systems  do  not  comply  with  the  Sanitary  School  House  Law. 


25 

This  practice  restricts  competition,  fosters  monopoly,  and 
results  in  contracts  being  awarded  on  bids  that  are  not  the  lowest 
submitted. 

It  would  be  difficult  to  estimate  the  loss  sustained  by  the  tax- 
payers of  the  State  through  this  corrupt  practice  which,  in  many 
instances,  embraced  collusion,  conspiracy,  bribery,  and  extortion. 

Arguments  made  by  manufacturers  and  contractors  were  such 
as  to  confuse  officials  who  were  not  experienced  in  heating  and 
ventilating,  and  contracts  were  secured  at  exorbitant  prices 
through  gross  misrepresentation. 

We  are  informed  that  State  Examiners  of  other  states  claim 
that  the  heating  and  ventilating  of  schools  and  other  public 
buildings  present  the  most  difficult  problem  with  which  they 
have  had  to  deal  in  trying  to  eliminate  graft. 

Public  officials,  before  contracting  for  the  construction  of 
any  heating  and  ventilating  system  to  be  let  upon  competitive 
bids,  should  employ  a  competent  heating  and  ventilating  engineer 
to  prepare  plans  and  specifications  for  the  same. 

It  is  not  our  purpose  to  encroach  upon  any  official's  duty,  but 
to  help  officials  to  comply  with  the  law,  to  keep  their  accounts 
accurate,  and  to  assist  them  and  the  taxpayers  of  the  different 
municipalities  in  obtaining  value  received  for  the  money  expended. 
We  believe  the  laws  are  ample  to  protect  the  public,  and  if  com- 
plied with  in  all  contracts  for  public  work  will  give  everybody  a 
square  deal. 

HIGHWAYS. 

During  the  last  decade  millions  of  dollars  have  been  spent  for 
highways  in  Indiana. 

The  statute  requires  the  board  of  county  commissioners,  if  it 
be  their  judgment  that  the  county  surveyor  is  competent,  to 
direct  him  to  have  charge  of  all  surveying  and  civil  engineering 
work  in  the  county,  including  plans  and  specifications  for  bridges, 
turnpikes,  roads,  ditches,  drains,  levees,  and  all  other  surveying 
and  engineering  work  in  the  county.  The  right  of  the  county 
commissioners  to  question  the  competency  and  to  impeach  the 
qualifications  of  the  county  surveyor  becomes  a  matter  of  keen 
personality,  and  is  only  exercised  in  rare  cases. 

It  is  known,  without  a  question,  that  some  counties  of  the 
State  have  elected  men  to  the  office  of  surveyor  that  are  deficient 
in  their  training  as  civil  engineers,  and  who  are  without  the 
technical  knowledge  necessary  for  the  preparation  of  proper  plans 


26 

and  specifications  for  public  improvements.  As  a  consequence 
of  the  inferiority  of  such  county  surveyors,  the  counties  suffer  in 
a  ratio  to  their  lack  of  competency. 

There  is  one  certain  cure  for  such  a  condition,  and  it  is  that  only 
competent  as  well  as  honest  men  be  elected  to  the  office  of  county  sur- 
veyor. How  the  standard  of  competency  should  be  fixed  is  a 
problem  yet  to  be  solved  by  the  legislature,  but  it  should  be  fixed 
and  such  surveyor  should  be  properly  compensated  for  efficient 
work. 

Incompetency  and  its  resultant  effects  alone  are  not  respon- 
sible for  all  the  objectionable  conditions  that  the  State  Board  of 
Accounts  has  located  and  exposed  in  its  examinations  of  county 
surveyors.  I  regret  to  say  that  graft  and  dishonesty  abound  in 
a  number  of  counties  to  an  alarming  extent.  In  several  counties 
we  found  the  surveyor  had  claimed  and  was  allowed  a  number  of 
per  diems  in  one  day.  In  another  county  it  developed  that  the 
surveyor  had  paid  $1,500.00  for  an  automobile,  and  was  paying 
for  it  through  his  expense  account.  His  board  of  commissioners 
had  allowed  him  $3,000.00  automobile  hire  for  his  machine  in  a 
single  year. 

The  opinion  seems  to  prevail  in  some  parts  of  the  State  that 
the  board  of  county  commissioners  has  power  to  make  substan- 
tial and  material  changes  in  the  plans  and  specifications  for  the 
construction  of  improved  highways  under  the  gravel  road  law 
after  the  bids  have  been  received  and  the  contract  let  therefor. 
It  is  our  opinion  that  the  board  does  not  have  such  power.  The 
board  of  commissioners  has  broad  powers  when  dealing  with 
county  property  and  in  attending  to  county  affairs,  but  the  board 
in  performing  duties  under  the  gravel  road  law  is  not  dealing  with 
county  property,  and  does  not  act  for  the  county,  but  acts  as 
agent  only  for  the  taxing  district  which  is  co-extensive  with  the 
township. 

Its  powers  and  duties  as  such  agent  are  prescribed  by  the 
statute.  In  carrying  the  law  into  effect,  the  board  cannot  exceed 
the  powers  with  which  it  has  been  invested.  The  statute  gives 
the  board  no  power  to  make  material  changes  in  the  plans.  On 
the  other  hand,  section  7733  Burns' requires  the  road  to  be  "com- 
pleted according  to  the  plans,  plats,  profiles,  and  contract  under 
which  such  improvement  was  let,"  and  requires  that  the  quantity 
and  quality  of  material  used  in  making  the  improvement  shall  be 
the  quantity  and  quality  named  in  the  specifications,  and  section 
7730  Burns'  makes  the  superintendent  and  the  engineer  liable  to 


27 

the  township  on  their  bonds  "for  failure  to  cause  said  road  or 
roads  to  be  built  and  constructed  according  to  the  plans,  profile, 
and  specifications  under  which  the  contract  to  construct  the  same 
was  let". 

The  several  sections  of  the  statute  in  each  case  requires  the 
work  to  be  done  in  accordance  with  the  plans  and  specifications 
upon  which  the  bids  were  received,  and  in  no  case  does  the  law 
mention  plans  and  specifications  as  modified  by  the  board. 

The  law  requires  that  profile,  plans,  and  specifications  for  the 
construction  of  an  improved  county  highway  shall  be  full  and 
complete  in  every  detail,  showing  the  exact  grade,  including  all 
bridges  and  culverts,  size  and  kind  of  same,  the  width,  depth,  and 
exact  description  of  material  to  be  used  for  paving  before  bids  are 
received  or  contract  awarded. 

After  the  letting  of  the  contract  there  is  neither  excuse  nor  law  for 
a  change  in  the  plans  and  specifications  as  originally  adopted  and 
upon  which  the  contract  is  based. 

While  the  records  of  this  office  show  that  in  most  counties  of 
the  State  the  commissioners  observe  the  statutes,  we  regret  to 
say  that  in  many  counties  changes  have  been  made  in  plans  and 
specifications  for  improved  county  highways,  and  in  every  such 
instance  the  cost  was  in  excess  of  the  contract  price,  while  the 
value  of  the  improvement  was  less  than  originally  provided  for. 
A  competent  authority  estimates  that  in  one  county  of  the  State 
contractors  on  rock  roads  within  the  last  ten  years  have  used  at 
least  300,000  cubic  yards  of  crushed  stone  less  than  that  required 
by  the  specifications,  and  for  which  the  taxpayers  paid.  The 
character  of  such  work  renders  it  practically  impossible  for  this 
department  to  discover  such  frauds  after  the  improvement  has 
been  completed  and  accepted  by  the  county.  If  the  engineer  and 
superintendent  upon  such  projects  are  competent  and  are  diligent 
in  the  discharge  of  their  duties,  they  can  require  the  work  to  be 
performed  according  to  plans  and  specifications.  We  are  pro- 
posing to  charge  the  engineer  and  superintendent  with  any  loss 
occasioned  by  the  failure  of  the  contractor  to  perform  the  work 
in  accordance  with  the  plans  and  specifications  when  we  are  able 
to  estabhsh  that  the  improvement  falls  short  of  the  standard 
set  by  such  plans  and  specifications. 


28 

COUNTY  INFIRMARIES. 

Our  examinations  have  disclosed  the  fact  that  in  some  counties 
of  the  State  the  superintendents  of  county  poor  asylums  have 
kept  no  record  of  the  farm  products  raised  and  used  or  sold  by 
their  institutions.  We  found  in  many  counties  that,  while  the 
poor  farm  was  large  enough  to  raise  sufficient  produce  for  the 
inmates,  thousands  of  dollars'  worth  of  farm  products  had  been 
purchased,  and  that  the  superintendent  had  sold  large  quantities 
of  the  products  of  the  farm  for  which  no  account  was  given  and 
no  payment  made  into  the  county  treasury. 

There  were  other  instances  where  the  superintendent  gave 
away  products  of  the  poor  farm  to  members  of  the  board  of 
county  commissioners,  who  are  vested  with  the  authority  to 
appoint  and  remove  the  county  infirmary  superintendent. 

This  department  has  prescribed  a  complete  system  of  account- 
ing for  county  infirmaries,  including  forms  upon  which  to  regu- 
larly report  all  transactions.  This,  with  annual  examinations,  is 
resulting  in  the  establishment  of  business  methods  in  these  insti- 
tutions and  a  large  saving  to  the  taxpayers. 

COMMON  SCHOOL  FUND  PRINCIPAL. 

In  an  examination  covering  a  period  of  eighty-eight  years,  in 
which  it  was  necessary  to  examine  many  old  files  and  records  in 
the  basement  of  the  State  House,  it  was  found  that  there  was 
due  to  the  common  school  fund  of  the  State  on  the  thirtieth  day 
of  April,  1916,  the  sum  of  $35,101.68.  We  have  ordered  that  a 
transfer  of  that  amount  be  made  to  the  common  school  fund 
principal  from  the  funds,  and  in  the  amounts  as  follows : 

Sale  of  State  lands $25,170. 74 

Sale  of  swamp  lands 3,499 .  01 

Escheated  estates 6,431 .  93 

Total $35,101.68 

This  sum  will  be  included  in  the  next  apportionment  of  com- 
mon school  fund  principal  to  the  several  counties  of  the  State, 
to  be  loaned  for  the  benefit  of  the  State  tuition  fund. 

This  investigation  also  shows  a  balance  of  $104,864.65  in  the 
unclaimed  estates  fund,  of  which  amount  the  sum  of  $63,058.54 
was  paid  into  the  State  treasury  prior  to  April  30,  1911,  and 
when  the  necessary  statutory  action  has  been  had  the  balance 


29 

remaining  unclaimed   will   also   be  transferred  to  the   common 
school  fund  principal  of  the  State. 

SCHOOL  FUND  LOANS. 
School  funds  loaned  throughout  the  State  are  as  follows: 

Common  School  Fund  $  9,304,592.04 

Permanent  Endowment  Fund 607,235.47 

Congressional  School  Fund 2,480,620.75 

Total $12,392,448.26 

Our  examinations  disclosed  that  the  School  Funds  of  the 
State  were  in  a  serious  condition.  The  records  in  many  counties 
showed  incorrect  balances.  An  examiner  from  this  department 
visited  such  counties  and  aided  in  correcting  the  records  by  re- 
quiring appropriations  by  the  county  councils.  One  county 
appropriated  $12,36L47  to  effect  a  proper  balance.  Last  year 
was  the  first  time  in  fifty  years  that  all  the  counties  had  correct 
balances.  Hundreds  of  loans  had  been  made  where  descriptions 
of  the  land  mortgaged  were  defective;  for  these  new  mortgages 
were  secured.  We  found  in  many  counties  the  interest  delin- 
quent from  a  few  months  to  several  years,  and  in  some  instances 
the  delinquent  interest  amounted  to  more  than  the  principal. 
To  meet  the  semi-annual  settlement  of  school  fund  interest  with 
the  Auditor  of  State,  many  counties  had  been  compelled  to 
advance  considerable  sums  out  of  the  general  fund.  We  found 
loans  made  to  imaginary  borrowers  on  imaginary  lands.  In  one 
county  the  auditor  and  treasurer  both  seemed  to  be  ignorant  of 
the  condition  of  their  school  funds  balances,  and  overloaned  the 
school  funds  available  more  than  $75,000.  In  another  county  it 
was  necessary  to  file  more  than  one  hundred  suits  of  foreclosure 
on  school  fund  mortgages,  which  resulted  in  a  net  loss  of  more 
than  $25,000.00  to  the  taxpayers.  In  several  other  counties  the 
conditions  were  bad,  but  the  loss  not  nearly  so  great. 

All  is  now  changed.  Reports  received  January  first  show  that 
all  loans  were  solvent  in  73  counties.  According  to  estimates 
received,  the  probable  total  loss  in  the  remaining  19  counties  will 
not  exceed  $23,000.00.  The  dehnquent  interest  has  been  reduced 
one-half  in  twelve  months,  and  will  be  further  greatly  reduced 
within  another  year. 

With  the  good  spirit  of  law  enforcement  generally  prevailing 
among  the  county  auditors  of  the  State,  overdue  school  fund 


30 

mortgage  loans  will  soon  all  be  reappraised  and  renewed,  and  fire 
policies  where  necessary  to  protect  the  security  will  have  been 
furnished  by  the  borrowers  for  the  full  loan  period  of  five  years. 
School  fund  loans  should  be  and  will  be  as  safe  and  sound  as 
are  farm  mortgage  loans  made  under  the  conservative  methods 
of  life  insurance  companies. 

LAND  DEPARTMENT. 

A  thorough  examination  of  the  land  department  resulted  in 
the  location  of  thousands  of  acres  of  State  lands  which  are 
claimed  by  individuals.  The  title  to  some  6,000  acres  lying  along 
the  Kankakee  River  is  now  the  subject  of  litigation  in  the  State 
courts,  with  the  latest  judgments  in  favor  of  the  State.  This 
examination  also  aided  in  perfecting  the  record  title  to  hundreds 
of  tracts  of  lands  owned  by  individuals. 

BOND  SALES. 

It  is  a  part  of  the  settled  public  policy  of  this  State  since  the 
passage  of  the  county  and  township  reform  laws,  and  under  the 
present  trend  of  judicial  decisions  with  respect  to  the  limitation 
of  public  officers,  to  require  all  bonds  of  municipal  corporations 
and  political  subdivisions  of  the  State  to  be  disposed  of  to  the 
highest  bidder,  which  must  not  be  less  than  par  and  accrued  inter- 
est to  date  of  sale.  If  there  be  no  bids,  there  may  be  successive 
advertising  in  such  places  as  will  command  the  attention  of  those 
who  desire  to  purchase  such  securities. 

The  'power  of  a  public  official  cannot  he  delegated  to  a  third  person. 
A  commission  cannot  he  charged  under  some  other  name.  To  do  so 
would  only  be  a  subterfuge,  and  would  be  void.  Therefore,  where 
a  commission  or  brokerage  is  found  to  have  been  paid  in  the  sale 
of  bonds  field  examiners  have  been  instructed  to  make  a  charge 
against  the  proper  official  for  such  commission  or  brokerage. 

FEES  AND  SALARIES. 

There  is  a  conflict  in  our  statutes  governing  fees  for  certain 
services.  There  is  also  a  difference  of  opinion  among  good  lawyers 
as  to  the  intent  of  these  statutes. 

The  inequality  of  salaries  paid  the  various  officers,  their 
deputies,  clerks,  and  stenographers  is  surprising.  Some  officials 
In  Indiana  are  making  out  of  their  offices  from  all  sources,  after 
paying  all  expenses,  as  much  as  two  or  three  times  the  salary  paid 


31 

the  highest  salaried  State  official,  while  many  important  officials 
are  underpaid.  The  public  officers  of  Indiana  are  operating  under 
a  fee  and  salary  law  enacted  by  the  1895  legislature.  This  law 
was  based  on  the  then  existing  conditions  as  to  population  and 
necessary  service.  The  salaries  then  established,  excepting  in 
cases  affected  by  special  legislation,  have  remained  the  same. 

For  example,  the  salaries  of  the  clerks  of  the  circuit  court  are 
based  upon  the  fees  collected  in  1895.  The  official  is  required  to 
pay  the  salaries  of  his  deputies  and  other  assistants.  In  one 
county  the  fees  collected  in  1895  amounted  to  approximately 
$2,400.00,  and  the  clerk's  salary  was  fixed  at  $2,400.00.  This 
has  been  the  salary  of  such  officer  since  that  time,  but  the  business 
of  the  office  has  decreased  until  the  fees  last  year  amounted  to 
approximately  $1,800.00.  In  one  of  the  largest  counties  in  the 
State  the  salary  of  the  clerk  last  year  amounted  to  only  37  per 
cent,  of  the  fees  collected.  In  that  county  six  deputies  are  now 
required  to  keep  up  the  work  of  the  office  which  was  formerly 
done  by  three.  By  doing  the  work  of  one  deputy,  the  clerk  was 
able  to  save  but  $1,400.00  for  his  own  use  from  the  salary   provided. 

In  one  of  our  large  counties  the  auditor,  after  paying  for  the 
necessary  help  to  properly  conduct  the  business  of  the  office,  and 
devoting  his  time  to  his  official  duties,  had  remaining  only  $750.00 
as  a  net  salary  for  himself.  Similar  conditions  exist  as  to  many 
county  and  municipal  officers  throughout  the  State. 

.  The  remuneration  of  the  township  trustee  was  fixed  at  $2.00 
per  day  when  the  farmer  could  employ  farm  labor  at  $12.00  to 
$15.00  per  month.  The  same  class  of  farm  labor  now  cannot  be 
had  for  less  than  $25,00  per  month.  The  duties  of  the  trustee 
have  greatly  increased,  but  his  per  diem  remains  the  same,  except 
where  special  legislation  has  been  had.  The  following  illustrates 
the  inequality  of  the  remuneration  of  the  trustees: 

In  one  county  the  trustee  in  a  township  having  a  population 
of  14,104,  sixteen  school  buildings,  and  many  miles  of  roads  and 
ditches,  received  payment  for  the  full  number  of  313  working 
days  of  the  year.  In  another  township  in  the  same  county,  hav- 
ing a  population  of  only  2,727,  seven  schools,  and  less  than  one- 
third  of  the  amount  of  business  of  the  larger  township,  the  trustee 
received  the  same  pay  as  the  trustee  of  the  larger  township.  The 
same  inequality  exists  to  a  greater  or  less  degree  in  all  parts  of  the 
State 


32 

It  is  the  judgment  of  the  State  Board  of  Accounts  and  the  field 

examiners  that  the  per  diem  in  Indiana  should  be  abolished,  and  that 

he  salaries  of  all  officials,  the  number  of  clerks  and  stenographers, 

and  the  salary  of  each    should   be   provided  for  by  .statute  and  no 

piiblic  officer  should  be  allowed  to  retain  any  fee  collected. 

All  fees  should  be  paid  into  the  treasury.  A  bill  can  be  so 
framed  that  when  enacted  into  law  it  will  equahze  all  salaries  and 
provide  for  reasonable  increases  and  decreases  in  the  same,  based 
upon  the  increase  or  decrease  in  the  responsibilities  and  demands 
upon  the  official. 

As  a  basis  for  the  salary  and  assistants  to  be  allowed  public 
officials  in  such  a  law,  all  offices  of  the  same  kind  should  be 
divided  into  ten  classes,  to  be  determined  by  the  population  of 
the  county,  township,  city  or  town,  the  valuation  of  the  property 
as  shown  on  the  tax  duplicate,  and  all  other  affairs  of  the  munici- 
pality which  affect  the  service  demanded  of  the  official  in  the  con- 
duct of  his  office. 

Under  such  a  fee  and  salary  law,  if  the  regular  business  of  an 
office  increases  10  per  cent.,  automatically  such  office  would  come 
under  the  next  higher  class,  with  a  corresponding  increase  of 
salary  and  assistants.  Likewise,  if  the  business  of  the  office 
decreased  10  per  cent.,  automatically  the  office  would  come 
under  the  next  lower  class,  with  a  corresponding  decrease  of 
salary  and  assistants. 

The  method  of  automatic  increase  and  decrease  in  salaries 
through  classification  of  offices  should  be  based  on  the  scientific 
principles  of  cost  and  office  accounting,  and  fully  embodied  in 
the  proposed  statute. 

In  the  preparation  of  the  proposed  fee  and  salary  law  men 
should  be  consulted  who  hold  official  positions  that  would  be 
affected  by  such  legislation,  and  conferences  should  also  be  held 
with  taxpayers  and  commercial  organizations  throughout  the 
State.  At  these  conferences  all  political  parties  should  be  repre- 
sented. 

The  preparation  of  the  bill  should  be  free  from  political  bias,  the 
sole  object  being  to  give  the  people  of  Indiana  a  fee  and  salary  law 
that  will  be  fair  and  equitable  to  the  taxpayers  and  officials,  and  so 
graduated  with  automatic  regulation  that  there  will  be  no  occasion 
or  demand  for  special  legislation  affecting  salaries. 

A  Concurrent  Resolution  was  passed  by  the  General  As- 
sembly at  the  sixty-seventh  regular  session  (see  Acts  1911,  p.  701), 
directing  the  State  Board  of  Accounts  to  submit  to  the  regular 


33 

session  of  the  General  Assembly,  1913,  facts  and  data  that  would 
be  of  value  in  determining  and  fixing  just  and  reasonable  compen- 
sation for  public  officials.  This  department  complied  with  said 
resolution,  and  submitted  a  comprehensive  report  of  352  pages 
covering  the  year  1911.  The  data  for  this  report  was  secured  and 
compiled  by  our  field  examiners. 

While  no  action  was  taken,  this  report,  together  with  informa- 
tion since  secured  by  our  field  examiners,  will  be  available.  This 
data  will  also  be  available  for  the  use  of  all  the  members  of  the 
legislature,  and  I  believe  it  will  confirm  the  equity  of  every 
feature  of  a  new  fee  and  salary  law  along  the  lines  herein  suggested. 

The  enactment  of  such  a  new  fee  and  salary  law  would  reduce 
the  expense  of  examination  by  the  State  Board  of  Accounts  very 
materially. 


34 


EXPENSE  OF  STATE  BOARD  OF  ACCOUNTS  FROM  JULY  1,  1914, 
TO  JUNE  30,  1916. 


ON  ACCOUNT. 

Year  Ending 
June  30,  1915. 

Year  Ending 
June  30,  1916. 

Chief  Examiner's  salary 

$     4,000,00 

6,000.00 

2,800.00 

16,793.85 

3,783.99 

145,748.00 

2,038.71 

56.75 

2,799.82 

$     4  000  00 

Deputy  Examiner's  salaries  (2) 

6  000  00 

Legal  Clerk's  salary 

2  800  00 

Clerical  assistant's  salaries 

15  687  00 

Office  and  traveling  expense 

4  587  57 

Per  diem  Field  Examiners 

132  434  00 

Railroad  fare  Field  Examiners 

1  539  24 

Special  expense 

40  90 

Printing  and  supplies 

4  076  40 

Total 

$184,021.12 

$171   165  11 

CHARGES  RESULTING  FROM   EXAMINATIONS  OF  PUBLIC 

OFFICIALS  MADE  DURING  TWO  YEARS  ENDING 

JUNE  30,  1916. 


Year  Ending 
June  30,  1915. 


Year  Ending 
June  30,  1916. 


State  officials  and  institutions. . 

County  officials 

Township  officials 

Officiils,  civil  cities  and  towns. . 
Officials,  school  cities  and  towns 

Total 


2,699.89 
55,881.29 
62,755.69 
71,438.37 

1,339.55 


$194,114.79 


2,119.14 
86,511.01 
59,276.25 
51,527.88 
10,258.17 


$209,692.45 


35 


COLLECTIONS,  RECOVERIES,  CASES  CERTIFIED  TO  THE 
GOVERNOR,  AND  CASES  PENDING  SETTLEMENT,  ON 
ACCOUNT  OF  EXAMINATIONS  MADE  DURING  THE  TWO 
YEARS   ENDING   JUNE    30,    1916. 


Year  Ending 
June  30,  1915. 


Year  Ending 
June  30,  1916. 


By  payment  during  examination 

By  payment  to  municipality 

By  payment  to  department 

By  court  collections 

By  cases  certified  to  the  Governor  (pend- 
ing)   

By  eases  pending  settlement  by  this  de- 
partment  

By  charges  not  sustained  by  the  courts. 

Total  charges 

From  which  should  be  deducted  charges 
not  sustained  by  the  courts 

Total  current  cases 

To  which  should  be  added  collections 
made  during  the  period  covered  by 
this  report  on  cases  pending  settle- 
ment June  30,  1914— 

By  payment  to  municipality 

By  payment  to  department 

By  court  collections 

Total  collections,  all  cases,  and 
claims  pending  settlement  on 
account  of  examinations  made 
during  two  years  ending  June  30, 
1916 


$54,069.91 

12,228.71 

30,897.25 

2,000.00 

11,291.01 

77,737.99 
5,889.92 


$194,114.79 
5,889.92 


$188,224.87 


57,613.49 
3,977.57 
3,118.76 


$202,934.69 


$78,719.37 

7,313.76 

11,922.85 

2,729.68 

18,006.24 

85,251.06 
5,749.49 


$209,692.45 
5,749.49 


$203,942.96 


J2,346.83 
6,359.68 


$212,649.47 


36 


The  following  comparative  table  is  inserted  for  the  purpose  of 
showing  the  reduction  of  $78,874.45  in  the  annual  expense  of  the 
State  Board  of  Accounts  between  the  years  1914  and  1916: 


EXPENSE   OF  DEPARTMENT. 


Chief  Examiner 

Deputy  Examiners 

Legal  Clerk . 

Clerical  Assistants 

Office  and  traveling  expense. 
Per  diem,  Field  Examiners. . 

Railroad  fare  examiners 

Special  expense 

Printing  and  supplies 


Total $250,039.56 


June  7,  1913, 

to 
June  30, 1914. 


$4,266.67 

6,400.00 

2,829.88 

18,194.38 

4,407.31 

205,420.00 

3,802.10 

34,75 

4,684.47 


July  1,  1914, 

to 
June  30, 1915. 


$4,000.00 

6,000.00 

2,800.00 

16,793.85 

3,783.99 

145,748.00 

2,038.71 

56,75 

2,799.82 


July  1,   1915, 

to 
June  30, 1916. 


$4,000.00 

6,000.00 

2,800.00 

15,687.00 

4,587.57 

132,434.00 

1,539.24 

40,90 

4,076.40 


021.12   $171,165.11 


RECOVERIES,  COLLECTIONS,  AND  IRREGULARITIES  PENDING 
AND  IN  PROCESS  OF  SETTLEMENT,  DISCLOSED  BY  THE 
STATE   BOARD   OF  ACCOUNTS. 


By  payment  during  examination, 
By  payment  to  municipality.  .  .  . 

By  payment  to  department 

By  court  collections 

By  cases  certified   to   Governor 

(Pending) 

By  cases  pending  in  process  of 

settlement  by  the  department. 
Total 


Year. 


June  7,  1913, 

to 
June  30, 1914. 


$65,706.19 
59,964.66 
20,980.93 
27.729.23 


96,111.45 


$270,492.46 


Year. 


July  1,   1914, 

to 
June  30, 1915. 


$54,069.91 
19,842.20 

34,874.82 
5,118.76 

11,291.01 

77,737.99 


$202,934.69 


Year. 


July  1,   1915, 

to 
June  30, 1916. 


178,719.37 

7,313.76 

14.269.68 

9.089.36 

18.006.24 

85,251.06 


$212  649.47 


Note: 

The  tabulation  for  the  period  ending  June  30,  1914,  was  taken  from  the 
special  report  published  that  year,  and  the  $96,111.45  cases  pending  settle- 
ment by  the  department  contained  the  unsettled  cases  at  that  time,  as  the 
result  of  all  examinations  made  since  the  organization  of  the  department, 
while  the  cases  pending  for  the  years  ending  June  30,  1915,  and  June  30, 
1916,  as  shown  above,  are  the  cases  pending  on  June  30,  1916,  as  the  result 
of  examinations,  only,  made  during  the  years  ending  June  30,  1915,  and 
June  30,  1916. 


37 

Sixty  per  cent,  of  all  offices  were  examined  during  the  first 
six  montlis  of  the  calendar  year  of  1916.  The  expenses  of  the 
department  for  the  last  six  months  of  1916,  and  the  cost  of  the 
examinations  of  the  remaining  40  per  cent,  of  the  offices  will  be 
less  than  $65,000.00. 

The  exact  total  of  these  expenses  and  the  recoveries  made  and 
charges  pending,  as  a  result  of  these  examinations,  will  be  deter- 
mined directly  after  January  1,  1917,  and  the  foregoing  statements 
made  complete  to  December  31,  1916,  for  the  information  of  the 
legislature  and  the  general  public. 


38 

CONCLUSION. 

A  study  of  the  foregoing  report  we  believe  will  result  in  the 
conviction  that  the  State  needs  a  department  of  inspection  and 
supervision  of  public  offices,  and  that  such  a  department  should 
not  be  limited  in  its  scope  to  a  mere  audit  of  the  accounts  of  the 
office  examined.  We  have  construed  the  law  creating  this  depart- 
ment as  being  broad  enough  to  authorize  us  to  make  a  direct 
or  collateral  examination  and  investigation  into  all  the  transac- 
tions of  a  public  official.  We  have  every  reason  to  believe  that 
the  refusal  of  this  department  to  confine  its  activities  to  a  mere 
checking  of  the  financial  accounts  of  public  offices  and  its  insis- 
tence upon  the  strict  observance  by  public  officers  of  the  duties 
imposed  upon  them  by  law,  will  meet  with  your  approval  and  with 
the  approval  of  the  people  and  their  representatives.  Certainly 
such  a  course  adds  largely  to  the  sphere  of  usefulness  of  the 
department  to  the  public,  and  is  abundantly  justified  by  the  letter 
and  the  spirit  of  the  law. 

We  are  confident,  also,  that  the  suggestions  and  help  given  to 
public  officials  in  the  purchase  of  supplied  and  materials  and  in 
the  construction  and  repair  of  public  buildings  are  within  the 
letter  as  well  as  the  spirit  of  the  law,  and  that  they  have  saved 
the  public  much  money,  and  will  be  a  source  of  saving  in  the 
future.  We  confidently  state  that,  from  a  conservative  estimate, 
this  department,  as  a  result  of  its  examinations  and  investiga- 
tions of  public  offices  and  public  building  contracts,  aside  from 
the  actual  recoveries  in  dollars  and  cents,  is  saving  to  the  tax- 
payers of  the  State  more  than  one  million  dollars  annually.  The 
one  feature  of  the  law  operating  to  the  greatest  benefit  in  a 
financial  way,  and  the  one  that  is  the  least  apparent  to  those  who 
have  not  studied  it,  is  its  repressive  effect. 

The  certainty  of  examination  and  detection  is  a  greater  preventive 
of  fraud  than  a  law  providing  a  penalty  for  such  a  fraud,  which  does 
not  provide  a  method  for  its  detection. 

It  is  our  opinion  that  the  integrity  of  the  officials  and  the 
character  of  the  service  rendered  by  them  are  not  surpassed  in 
any  other  state  in  the  Union. 

Above  all,  we  desire,  in  conclusion,  to  point  to  a  lesson  taught 
by  conditions  found  in  public  offices  throughout  the  State  as 
revealed  by  the  work  of  the  accounting  board,  and  that  is,  that 
the  fundamental  need  of  the  times  is  that  the  voters  in  selecting 
their  candidates  at  primary  elections,  should  be  influenced  by  the 


39 

competency  as  well  as  the  honesty  of  the  candidate.  We  are 
constrained  to  the  belief  that  too  many  voters  look  upon  the  public 
job  as  something  to  be  bestowed  as  a  favor  upon  a  friend  or  good 
fellow,  rather  than  a  position  to  be  filled  for  public  benefit.  We 
live  under  a  system  of  party  government,  and  it  ought  to  be 
possible  to  convince  voters  that  in  the  primaries  the  controlling 
considerations  should  be  competency  as  well  as  honesty.  Not 
until  voters  at  the  primaries  become  actively  alive  to  the  truth 
that  they  should  act  on  this  criterion  in  the  selection  of  public 
servants  the  same  as  they  do  in  selecting  help  in  their  private 
enterprises,  will  the  public  secure  that  standard  of  efficiency  and 
honesty  in  public  life  that  they  insist  upon  in  their  private  affairs; 
and  it  is  confidently  hoped  that  those  who  peruse  this  report  will 
find  something  in  it  to  impress  this  truth  upon  them. 
Respectfully  submitted, 

Gilbert  H.  Hendren, 
October  2,  1916.  State  Examiner. 


537 it".  . 


UNIVERSITY  OF  CAUFORNIA  LIBRARY 


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